SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934 For the quarter ended June 30, 2002

                                       OR

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
     OF   1934   For   the   transition   period   from    _______________    to
     _________________.

                                                Commission File Number   0-25933


                        SOUTHCOAST FINANCIAL CORPORATION
        (Exact Name of Small Business Issuer as Specified in its Charter)


     South Carolina                                   58-2384011
(State of Incorporation)                (I.R.S. Employer Identification Number)



               530 Johnnie Dodds Boulevard, Mt. Pleasant, SC 29464
                    (Address of Principal Executive Offices)


                                 (843) 884-0504
                           (Issuer's Telephone Number)


         Check whether the issuer (1) has filed all reports required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 12 months (or for
such shorter periods that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. [ X ] Yes
[ ] No

         State the number of shares  outstanding of each of the issuer's classes
of common  equity,  as of the latest  practicable  date:  Common  Stock - No Par
Value: 1,320,179 Shares Outstanding on July 31, 2002.

         Transitional Small Business Disclosure Format (Check one):

         [ ]  Yes  [X]  No












                                       1
<Page>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  Financial Statements

                        SOUTHCOAST FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                                                      (Unaudited)
                                                                                                        June 30,        December 31,
                                                                                                          2002               2001
                                                                                                          ----               ----
ASSETS
<S>                                                                                                 <C>                 <C>
   Cash and due from banks .................................................................        $  3,685,295        $  6,627,108
   Federal funds sold ......................................................................           8,304,000             560,000

   Investment securities available for sale ................................................          13,030,144           8,283,358
   Loans held for sale .....................................................................           1,560,750           4,125,049
   Loans, net of allowance of $1,466,253 and $1,215,164 ....................................         119,544,998          95,737,280
   Property and equipment - net ............................................................           8,383,641           7,748,698
   Other assets ............................................................................           1,588,382           1,227,427
                                                                                                    ------------        ------------
       Total assets ........................................................................        $156,097,210        $124,308,920
                                                                                                    ============        ============

LIABILITIES
   Deposits
     Noninterest-bearing ...................................................................        $ 12,363,421        $ 12,667,145
     Interest bearing ......................................................................         108,992,089          69,188,562
                                                                                                    ------------        ------------
       Total deposits ......................................................................         121,355,510          81,855,707

   Other borrowings ........................................................................          17,400,000          30,400,000
   Other liabilities .......................................................................           1,238,647             503,721
                                                                                                    ------------        ------------

       Total liabilities ...................................................................         139,994,157         112,759,428
                                                                                                    ------------        ------------
    Trust preferred securities .............................................................           4,000,000                   -

SHAREHOLDERS' EQUITY
   Common stock (no par value; 20,000,000 shares authorized; 1,320,179 shares
     outstanding at June 30, 2002 and
     1,197,482 at December 31, 2001) .......................................................          11,362,980          11,339,708
   Retained earnings .......................................................................             653,837             142,621
   Accumulated other comprehensive income ..................................................              86,236              67,163
                                                                                                    ------------        ------------
       Total shareholders' equity ..........................................................          12,103,053          11,549,492
                                                                                                    ------------        ------------
       Total liabilities and shareholders' equity ..........................................        $156,097,210        $124,308,920
                                                                                                    ============        ============
</Table>







                 See notes to consolidated financial statements.



                                       2
<Page>

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<Table>
<Caption>
                                                                   Six months        Six months       Three months      Three months
                                                                     ended             ended              ended            ended
                                                                 June 30, 2002     June 30, 2001      June 30, 2002    June 30, 2001
                                                                 -------------     -------------      -------------    -------------
INTEREST INCOME
<S>                                                                 <C>               <C>               <C>               <C>
Loans, including fees ......................................        $4,126,155        $3,937,887        $2,134,371        $1,974,948
Investment securities ......................................           147,309           223,101            94,998           127,332
Federal funds sold .........................................            79,020            53,628            55,056            24,216
                                                                    ----------        ----------        ----------        ----------

              Total interest income ........................         4,352,484         4,214,616         2,284,425         2,126,496

INTEREST EXPENSE
Deposits and borrowings ....................................         1,759,533         2,287,859           979,443         1,119,062
                                                                    ----------        ----------        ----------        ----------

         Net interest income ...............................         2,592,951         1,926,757         1,304,982         1,007,434

Provision for possible loan losses .........................           259,172           125,000           153,629            65,000
                                                                    ----------        ----------        ----------        ----------

Net interest income after provision ........................         2,333,779         1,801,757         1,151,353           942,434

NON INTEREST INCOME
Services fees on deposit accounts ..........................           273,280           193,894           151,433            86,677
Fees on loans sold .........................................           272,800           234,834           142,240           149,557
Other ......................................................           329,026            69,651           190,063            32,770
                                                                    ----------        ----------        ----------        ----------

              Total non interest income ....................           875,106           498,379           483,736           269,004

NON INTEREST EXPENSES
Salaries and employment benefits ...........................         1,430,336         1,147,437           728,654           588,607
Occupancy ..................................................           185,904           114,059            88,246            58,033
Furniture and equipment ....................................           223,624           197,012           117,955            96,636
Advertising and public relations ...........................            51,737            34,958            29,814            20,644
Professional fees ..........................................            63,627            84,379            26,836            45,767
Travel and entertainment ...................................            73,866           102,479            34,380            49,968
Telephone, postage and supplies ............................           138,331           105,896            60,536            50,631
Other operating ............................................           201,763           116,049           106,013            61,813
                                                                    ----------        ----------        ----------        ----------

              Total non-interest expenses ..................         2,369,188         1,902,269         1,192,434           972,099
                                                                    ----------        ----------        ----------        ----------

         Income before income tax ..........................           839,697           397,867           442,665           239,339
         Income tax ........................................           328,481           141,692           175,610            87,186
                                                                    ----------        ----------        ----------        ----------

         Net income ........................................        $  511,216        $  256,175        $  267,045        $  152,153
                                                                    ==========        ==========        ==========        ==========

Basic Net Income Per Common Share ..........................        $      .39        $      .23        $      .20        $      .13
Diluted Net Income Per Common Share ........................               .37               .22               .19               .13

Weighted Average Shares Outstanding

     Basic .................................................         1,319,578         1,138,486         1,320,179         1,136,942
     Diluted ...............................................         1,370,140         1,171,034         1,374,307         1,171,695
</Table>





                 See notes to consolidated financial statements.



                                       3
<Page>

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                   (Unaudited)


<Table>
<Caption>
                                                                                                         Accumulated         Total
                                                            Common stock                                    other           share-
                                                            ------------                 Retained       comprehensive      holders'
                                                         Shares        Amount            earnings       income (loss)      equity
                                                         ------        ------            --------       -------------      ------

<S>                                                   <C>           <C>              <C>              <C>            <C>
BALANCE, JANUARY 1, 2001 ......................         947,872        9,669,155         (503,796)         (12,793)       9,152,566

   Stock dividend .............................          93,756

   Net income .................................               -                -          256,175                -          256,175

   Other comprehensive income, net
     of tax:
     Unrealized holding losses on
       securities available for sale ..........               -                -                -           52,282           52,282
                                                                                                                       ------------


   Comprehensive income .......................               -                -                -                -          308,457

   Repurchase of stock ........................         (11,775)        (109,102)               -                -
                                                                                                                           (109,102)
   Employee stock purchase plan ...............           3,731           27,248                -                -           27,248
                                                      ---------     ------------     ------------     ------------     ------------


BALANCE, June 30, 2001 ........................       1,033,584     $  9,587,301     $   (247,621)    $     39,489     $  9,379,169
                                                      =========     ============     ============     ============     ============



BALANCE, JANUARY 1, 2002 ......................       1,197,482     $ 11,339,708          142,621           67,163       11,549,492

   Stock dividend .............................         120,016


   Net income .................................               -                -          511,216                -          511,216

   Other comprehensive income, net
     of tax:
     Unrealized holding gains on
       securities available for sale ..........               -                -                -           19,073           19,073
                                                                                                                       ------------


   Comprehensive income .......................               -                -                -                -          530,289
   Employee stock purchase plan ...............           2,681           23,272                -                -           23,272
                                                      ---------     ------------     ------------     ------------     ------------

BALANCE, June 30, 2002 ........................       1,320,179     $ 11,362,980     $    653,837     $     86,236     $ 12,103,053
                                                      =========     ============     ============     ============     ============
</Table>

           See notes to consolidated financial statements.



                                       4
<Page>

                        SOUTHCOAST FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)


<Table>
<Caption>
                                                                                                      Six months ended June 30,
OPERATING ACTIVITIES                                                                                2002                     2001
                                                                                                    ----                     ----
<S>                                                                                          <C>                       <C>
   Net income ..................................................................             $    511,216              $    256,175
   Adjustments to reconcile net income to net
   cash provided by operating activities:
     Income tax ................................................................                  328,481                   141,692
     Provision for possible loan losses ........................................                  259,172                   125,000
     Depreciation and amortization .............................................                  227,929                   210,347
     Increase in other assets ..................................................                 (689,436)                 (788,182)
     Increase in other liabilities .............................................                  734,926                   388,478
                                                                                             ------------              ------------
         Net cash provided by operating activities .............................                1,372,288                   333,510
                                                                                             ------------              ------------

INVESTING ACTIVITIES
   Increase in federal funds sold ..............................................               (7,744,000)               (3,168,000)
   Purchase of investment securities available for sale ........................               (4,724,260)               (2,480,816)
   Net increase in loans .......................................................              (21,502,591)              (15,961,840)
   Purchase of property and equipment ..........................................                 (866,325)                 (668,963)
                                                                                             ------------              ------------
         Net cash used for investing activities ................................              (34,837,176)              (22,279,619)
                                                                                             ------------              ------------

FINANCING ACTIVITIES
   Increase (decrease) in borrowings ...........................................              (13,000,000)                8,625,000
   Increase in Trust preferred securities ......................................                4,000,000                         -
   Purchase of common stock ....................................................                        -                  (109,102)
   Proceeds from sale of stock, net ............................................                   23,272                    27,248
   Net increase in deposits ....................................................               39,499,803                12,395,501
                                                                                             ------------              ------------
         Net cash provided by financing activities .............................               30,523,075                20,938,647
                                                                                             ------------              ------------

         Increase (decrease) in cash and due from banks ........................               (2,941,813)               (1,007,462)


CASH AND DUE FROM BANKS, BEGINNING OF PERIOD ...................................                6,627,108                 3,942,566
                                                                                             ------------              ------------

CASH AND DUE FROM BANKS, END OF PERIOD .........................................             $  3,685,295              $  2,935,104
                                                                                             ============              ============
</Table>







     See notes to consolidated financial statements.



                                       5
<Page>


                        SOUTHCOAST FINANCIAL CORPORATION
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

           The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim  financial  information  and with the  instructions  to Form
10-QSB  and  item  310 (b) of  Regulation  S-B of the  Securities  and  Exchange
Commission.  Accordingly  they do not include all information and notes required
by generally accepted accounting  principles for complete financial  statements.
However,  in the opinion of management,  all  adjustments  (consisting of normal
recurring  adjustments)  considered  necessary for a fair presentation have been
included.

NOTE 2 - ORGANIZATION

           Southcoast Financial  Corporation (the "Company") is a South Carolina
corporation  organized  in 1999 for the  purpose of being a holding  company for
Southcoast Community Bank (the "Bank"). On April 29, 1999, pursuant to a Plan of
Exchange approved by the shareholders,  all of the outstanding shares of capital
stock of the Bank were exchanged for shares of common stock of the Company.  The
Company  presently engages in no business other than that of owning the Bank and
has no employees.

NOTE 3 - NET INCOME  PER SHARE

           Net income per share is computed on the basis of the weighted average
number of common shares  outstanding  in accordance  with Statement of Financial
Accounting Standards No. 128, "Earnings per Share". The treasury stock method is
used to compute the effect of stock  options on the weighted  average  number of
shares outstanding for diluted earnings per share.

           In April, 2002, the Company declared a ten- percent stock dividend of
the Company's  common stock. The weighted average number of shares and all other
share data have been  restated  for all periods  presented to reflect this stock
dividend.


NOTE 4 - Trust Preferred Securities

           In May  2002,  the  Company  issued  $4  million  of Trust  Preferred
Securities.  These  securities  are  considered  Tier 1 capital  for  regulatory
purposes.  They have a five-year call date with a maturity date of June 30 2032.
The interest rate on the securities floats quarterly with the three-month libor.



                                       6
<Page>

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

           The following  discussion and analysis  should be read in conjunction
with the financial  statements and related notes appearing in the Form 10-KSB of
Southcoast  Financial  Corporation.  Results of operations for the period ending
June 30, 2002 are not  necessarily  indicative of the results to be attained for
any other period.  Statements  included in Management's  Discussion and Analysis
which are not  historical  in nature  and are  intended  to be,  and are  hereby
identified  as  "forward  looking  statements"  for  purposes of the safe harbor
provided by section 21E of the Securities Exchange Act of 1934, as amended.  The
Company  cautions  readers that forward  looking  statements  including  without
limitation,  those  relating  to the  Company's  new  offices,  future  business
prospects,  revenues, working capital, liquidity, capital needs, interest costs,
and income,  are  subject to certain  risks and  uncertainties  that could cause
actual results to differ from those indicated in the forward looking statements,
due to several  important  factors herein  identified,  among others,  and other
risks and factors  identified  from time to time in the Company's  reports filed
with the Securities and Exchange Commission.


RESULTS OF OPERATIONS

The  Company's net income for the six months ended June 30, 2002 was $511,216 or
$.39 per basic share,  compared to $256,175 or $.23 per basic share, for the six
months ended June 30, 2001.  For the quarter ended June 30, 2002, net income was
$244,171  or $.20 per basic  share  compared to $152,153 or $.13 per basic share
for the quarter ended June 30, 2001.



NET INTEREST INCOME

Net interest  income is the difference  between the interest  earned on interest
earning assets and the interest paid for funds acquired to support those assets.
Net  interest  income,  the  principal  source of the  Company's  earnings,  was
$2,592,951  for the six months ended June 30, 2002,  compared to $1,926,757  for
the six months ended June 30,  2001.  For the quarter  ended June 30, 2002,  net
interest income was 1,304,982  compared to $1,007,434 for the quarter ended June
30, 2001.

Changes that affect net  interest  income are changes in the average rate earned
on interest earning assets, changes in the average rate paid on interest bearing
liabilities,  and changes in the volume of interest  earning assets and interest
bearing liabilities.

Average  earning  assets for the six months  ending June 30, 2002  increased  to
$120.3  million or 28.9  percent  from the $93.3  million  reported  for the six
months  ending  June 30,  2001.  The  increase  was mainly  attributable  to the
increase in loans  supported  by a $23.1  million  increase in interest  bearing
liabilities  which resulted from the continued  growth of the Charleston  market
area, and the Company's marketing efforts.

The  following  table  compares the average  balances,  yields and rates for the
interest  sensitive  segments of the Company's balance sheets for the six months
ended June 30,  2002 and 2001.  The  increase in net  interest  income is due to
increased volume of earning assets and interest bearing liabilities coupled with
a 41 basis point increase in the Company's net interest spread. The net interest
spread is the  difference  between the yield on earning assets minus the average
rate of interest bearing liabilities.




                                       7
<Page>


<Table>
<Caption>
                                                            Six months ended                             Six months ended
                                                            ----------------                             ----------------
                                                              June 30, 2002                                June 30, 2001
                                                              -------------                                -------------
                                               Average           Income/        Yield/      Average            Income/        Yield/
ASSETS                                         balance           expense        rate(1)     balance            expense       rate(1)
                                               -------           -------        -------     -------            -------       -------

<S>                                         <C>               <C>                <C>     <C>                  <C>              <C>
Federal funds sold ...................      $  9,609,336            79,020       1.64%   $  2,068,135            53,628        5.19%
Investments ..........................         5,239,336           147,309       5.62       6,589,711           223,101        6.77
                                            ------------      ------------               ------------         ---------
Total investments and
     federal funds sold ..............        14,848,672           226,329       3.05       8,657,846           276,729        6.39
Loans ................................       105,447,541         4,126,155       7.83      84,641,712         3,937,887        9.30
                                            ------------      ------------               ------------         ---------
Total earning assets .................       120,296,213         4,352,484       7.24      93,299,558         4,214,616        9.03
                                                              ------------                                    ---------
Other assets .........................        10,938,671                                    8,597,117
                                            ------------                                 ------------
Total assets .........................      $131,234,884                                 $101,896,675
                                            ============                                 ============

LIABILITIES
Interest bearing deposits ............      $ 83,221,737      $  1,237,876       2.97      64,802,982         1,770,520        5.46
Other borrowings .....................        22,740,773           521,657       4.59      18,076,647           517,339        5.72
                                            ------------      ------------               ------------         ---------
Total interest bearing
     liabilities .....................       105,962,510         1,759,533       3.32      82,879,629         2,287,859        5.52
                                                              ------------                                    ---------
Non-interest bearing
     liabilities .....................        14,544,987                                    9,633,081
                                            ------------                                 ------------
Total liabilities ....................       120,507,497         1,759,533       2.92      92,512,710         2,287,859        4.95
                                                              ------------                                    ---------
Equity ...............................        10,727,387                                    9,383,965
                                            ------------                                 ------------
Total liabilities and
     Equity ..........................      $131,234,884                                 $101,896,675
                                            ============                                 ============
Net interest income/
     margin ..........................                        $  2,592,951       4.31                         1,926,757        4.13
                                                              ============                                    =========
Net interest spread ..................                                           3.92                                          3.51
</Table>

(1)  Annualized


As reflected  above, for the six months ended June 30, 2002 the average yield on
earning  assets was 7.24  percent,  while the average  cost of  interest-bearing
liabilities was 3.32 percent. For the six months ended June 30, 2001 the average
yield  on  earning   assets  was  9.03   percent   and  the   average   cost  of
interest-bearing  liabilities  was 5.52  percent.  The  decrease in the yield on
earning assets is  attributable to the market rate decreases over the last year.
The net  interest  margin is  computed  by  subtracting  interest  expense  from
interest  income and dividing the resulting  figure by average  interest-earning
assets.  The net interest margin for the six months ended June 30, 2002 was 4.31
percent  compared to 4.13 percent for the six months  ended June 30,  2001.  The
increase in the  net-interest  margin is attributable to the increase the higher
yielding assets coupled with management  controlling  interest rates paid on the
interest bearing liabilities. The cost of total liabilities was 2.92 percent for
the six months  ended June 30, 2002  compared to 4.95 percent for the six months
ended June 30, 2001.




                                       8
<Page>


The following table represents the same  information for the three-month periods
ended June 30 ,2002 and 2001.





<Table>
<Caption>
                                                           Three months ended                           Three months ended
                                                           ------------------                           ------------------
                                                              June 30, 2002                                June 30, 2001
                                                              -------------                                -------------
                                               Average           Income/        Yield/      Average            Income/        Yield/
ASSETS                                         balance           expense        rate(1)     balance            expense       rate(1)
                                               -------           -------        -------     -------            -------       -------

<S>                                         <C>               <C>                <C>     <C>               <C>                 <C>
Federal funds sold ...................      $ 13,121,700      $     55,056       1.68%   $  1,947,737      $     24,216        4.97%
Investments ..........................         6,996,203            94,998       5.43       7,222,014           127,332        7.05
                                            ------------      ------------               ------------       -----------
Total investments and
     federal funds sold ..............        20,117,903           150,054       2.98       9,169,751           151,548        6.61
Loans ................................       110,912,588         2,134,371       7.70      88,075,662         1,974,948        8.97
                                            ------------      ------------               ------------       -----------
Total earning assets .................       131,030,491         2,284,425       6.97      97,245,413         2,126,496        8.75
                                                              ------------                                  -----------
Other assets .........................        10,640,244                                    8,414,307
                                            ------------                                 ------------
 Total assets ........................      $141,670,735                                 $105,659,720
                                            ============                                 ============

LIABILITIES
Interest bearing deposits ............      $ 95,402,845      $    723,586       3.03    $ 66,985,601           861,580        5.14
Other borrowings .....................        19,366,213           255,857       5.28      18,974,405           257,482        5.43
                                            ------------      ------------               ------------       -----------
Total interest bearing
     liabilities .....................       114,769,058           979,443       3.41      85,960,006         1,119,062        5.21
                                                              ------------                                  -----------
Non-interest bearing
     liabilities .....................        16,086,309                                   10,338,941
                                            ------------                                 ------------
Total liabilities ....................       130,855,367           979,443       2.99      96,298,947         1,119,062        4.65
                                                              ------------                                  -----------
Equity ...............................        10,639,408                                    9,560,773
                                            ------------                                 ------------
Total liabilities and
     Equity ..........................      $141,670,735                                 $105,859,720
                                            ============                                 ============
Net interest income/
     margin ..........................                        $  1,304,982       3.98                      $  1,007,434        4.14
                                                              ============                                 ============
Net interest spread ..................                                           3.56                                          3.54
</Table>

(1) Annualized



As reflected  above,  for the three months ended June 30, 2002 the average yield
on earning assets was 6.97 percent,  while the average cost of  interest-bearing
liabilities  was 3.41  percent.  For the three  months  ended June 30,  2001 the
average  yield on  earning  assets  was 8.75  percent  and the  average  cost of
interest-bearing  liabilities  was 5.21  percent.  The  decrease in the yield on
earning assets and the cost of interest  bering  liabilities is  attributable to
the market  rate  decreases  during the last year.  The net  interest  margin is
computed by subtracting  interest  expense from interest income and dividing the
resulting figure by average interest-earning assets. The net interest margin for
the three months  ended June 30, 2002 was 3.98 percent  compared to 4.14 percent
for the three  months  ended June 30,  2001.  The  decrease in the  net-interest
margin  is  attributable  to  the  decrease  in the  cost  of  interest  bearing
liabilities not being as great as the decrease in the yield on interest  earning
assets during the same period. A special  marketing  campaign for certificate of
deposits was  introduced in April 2002.  This campaign was  associated  with the
opening of a new branch.  The interest rate paid on these deposits was above the
bank's average cost of interest bearing  liabilities  therefore the average cost
increased.  The company raised over $30 million with this campaign.  The cost of
total  liabilities  was 2.99  percent for the three  months  ended June 30, 2002
compared to 4.65 percent for the three months ended June 30, 2001.






                                       9
<Page>



The following  table  represents  changes in the  Company's net interest  income
which  are  primarily  a  result  of  changes  in the  volume  and  rates of its
interest-earning assets and interest-bearing liabilities.




Analysis of Changes in Net Interest Income
<Table>
<Caption>
                                                                                   For the six  months ended June 30, 2002
                                                                                    versus six months ended June 30, 2001
                                                                                    -------------------------------------
                                                                              Volume                  Rate               Net change
                                                                              ------                  ----               ----------

<S>                                                                       <C>                    <C>                    <C>
Federal funds sold ............................................           $   195,694            $  (170,302)           $    25,392
Investments ...................................................               (45,710)               (30,082)               (75,792)
                                                                          -----------            -----------            -----------
Total investments and federal funds sold ......................               149,984               (200,384)               (50,400)
Total loans ...................................................               967,471               (779,203)               188,268
                                                                          -----------            -----------            -----------
Total earning assets ..........................................             1,117,455               (979,587)               137,868
Total interest-bearing liabilities ............................               636,226             (1,164,552)              (528,326)
                                                                          -----------            -----------            -----------
Net interest income ...........................................           $   481,229            $   184,965            $   666,194
                                                                          ===========            ===========            ===========
</Table>


Analysis of Changes in Net Interest Income
<Table>
<Caption>
                                                                                 For the three  months ended March 31, 2002
                                                                                  versus three months ended March 3, 2001
                                                                                  ---------------------------------------
                                                                                Volume                  Rate             Net change
                                                                                ------                  ----             ----------
<S>                                                                           <C>                   <C>                   <C>
Federal funds sold ...............................................            $ 138,837             $(107,997)            $  30,840
Investments ......................................................               (3,980)              (28,354)              (32,334)
                                                                              ---------             ---------             ---------
Total investments and federal funds sold .........................              134,857              (136,351)               (1,494)
Total loans ......................................................              512,118              (352,695)              159,423
                                                                              ---------             ---------             ---------
Total earning assets .............................................              646,975              (489,046)              157,929
Total interest-bearing liabilities ...............................              449,930              (589,549)             (139,619)
                                                                              ---------             ---------             ---------
Net interest income ..............................................            $ 197,045             $ 100,503             $ 297,548
                                                                              =========             =========             =========
</Table>






















                                       10
<Page>







NON-INTEREST INCOME AND EXPENSES



Non-interest  income  for the six  months  ended  June 30,  2002  was  $875,106,
compared to $498,379 for the six months ended June 30, 2001. The increase is due
to gains on  securities  sold,  the  increase in the number of deposit  accounts
generating  increased  fees on deposits,  gain on sale of property and increased
volume of loans sold.


Non-interest  expenses for the six months  ended June 30, 2002 were  $2,369,188,
compared to $1,902,269  for the six months ended June  30,2001.  The increase of
$466,919 is mainly attributable to increases in salaries and benefits, occupancy
cost,  furniture  and  equipment  expenses and  administrative  expenses.  These
increases  primarily  relate to expenditures  associated with the opening of the
Coleman  branch in December 2001 and the Johns Island branch in March 2002,  the
formation of a sales staff and the increase in  administrative  staff to support
the growth of the Company's operations.



Non-interest  income  for the three  months  ended June 30,  2002 was  $483,736,
compared to $269,004 for the three  months ended June 30, 2001.  The increase is
due to the increase in the number of deposit accounts generating  increased fees
on deposits and a gain on sale of property.

Non-interest  expenses for the three months ended June 30, 2002 were $1,192,434,
compared to $972,099 for the three months  ended June  30,2001.  The increase of
$220,335 is mainly attributable to increases in salaries and benefits, occupancy
cost,  furniture  and  equipment  expenses and  administrative  expenses.  These
increases  primarily  relate to expenditures  associated with the opening of the
Coleman  branch in December 2001 and the Johns Island branch in March 2002,  the
formation of a sales staff and the increase in  administrative  staff to support
the growth of the Company's operations.




LIQUIDITY

Liquidity  is the  ability  to  meet  current  and  future  obligations  through
liquidation or maturity of existing  assets or the  acquisition of  liabilities.
The Company manages both assets and liabilities to achieve appropriate levels of
liquidity.  Cash and short-term investments are the Company's primary sources of
asset liquidity.  These funds provide a cushion against short-term  fluctuations
in cash flow from both  deposits  and loans.  The  investment  portfolio  is the
Company's   principal  source  of  secondary  asset  liquidity.   However,   the
availability  of this  source  of  funds is  influenced  by  market  conditions.
Individual  and commercial  deposits and  borrowings  from the Federal Home Loan
Bank are the  Company's  primary  source of funds  for  credit  activities.  The
Company  also has a $3 million  line of credit with the Bankers Bank of Atlanta.
Management  believes that the Company's  liquidity  sources are adequate to meet
its operating needs.




LOANS

Commercial loans made up 48.1 percent of the total loan portfolio as of June 30,
2002, totaling $59.0 million.  Loans secured by real estate for construction and
land  development  totaled  $14.9  million while all other loans secured by real
estate  totaled $44.2 million or 36.1 percent of the total loan  portfolio as of
June 30,  2002.  Installment  loans  and  other  consumer  loans to  individuals
comprised $4.5 million or 3.6 percent of the total loan portfolio. The allowance
for loan losses was 1.20  percent of loans as of June 30, 2002  compared to 1.20
percent as of December 31, 2001. In management's opinion, the allowance for loan
losses is adequate. At June 30, 2002, the Company did not have any loans 90 days
delinquent and still accruing interest and had $1,022,000 of non-accruing loans.




                                       11
<Page>




CAPITAL RESOURCES

The  capital  base for the Company  increased  by  $4,553,561  for the first six
months  of  2002,  due to the  issuance  of  $4.0  million  of  Trust  Preferred
Securities,  operating income, unrealized gains on available for sale securities
and capital  raised through the Employee Stock Purchase Plan. The Company's tier
one capital to asset ratio was 10.3 percent as of June 30, 2002  compared to 9.3
percent as of December 31, 2001.


The Federal Deposit  Insurance  Corporation has established  risk-based  capital
requirements  for banks.  As of June 30, 2002,  the  Company's  subsidiary  bank
exceeds the capital requirement levels that are to be maintained.



                                 Capital Ratios
<Table>
<Caption>
                                                                                   Well Capitalized           Adequately Capitalized
                                                          Actual                     Requirement                   Requirement
                                                          ------                     -----------                   -----------
                                                 Amount           Ratio          Amount         Ratio          Amount         Ratio
                                                 ------           -----          ------         -----          ------         -----
<S>                                             <C>               <C>           <C>             <C>            <C>            <C>
Total capital to risk weighted assets           $12,200           10.44%        $11,687         10.00%         $9,345         8.00%
Tier 1 capital to risk weighted assets           10,739             9.19          7,012          6.00           4,675         4.00
Tier 1 capital to average assets                 10,739             7.58          7,083          5.00           5,667         4.00
</Table>








                                       12
<Page>


                           PART II - OTHER INFORMATION




ITEM 4.  Submission of Matters to a Vote of Security Holders.

Incorporated by reference to item 4 of Registrant's
March 31, 2002 Quarterly Report on Form 10-QSB




ITEM 6.  Exhibits and Reports on Form 8-K.
-------

a)   Exhibits: None




b)   Reports on form 8-K. None.








                                       13
<Page>


                                   SIGNATURES


In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                    Southcoast Financial Corporation
                                       Registrant


                                        s/L. Wayne Pearson
Date:  August 14, 2002              By:-----------------------------------------
                                         L. Wayne Pearson
                                         President and Chief Executive Officer


                                        s/Robert M. Scott
Date: August 14, 2002               By:-----------------------------------------
                                         Robert M. Scott
                                         Executive Vice President and Chief
                                         Financial Officer

































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